Bank fears led to business rate row

The Coalition is to stand firm on controversial plans to postpone a
revaluation of business rates and increase the tax in line with inflation,
amid concerns within the Government that a revaluation would lead to a
multi-million pound tax cut for banks.

Property and retail bosses are furious that the Coalition has scrapped a planned revaluation of business rates next year because it means that they have to pay rates based on property rents in 2008 – close to the peak of the market – until 2017.Photo: ALAMY

The Government has been under pressure from retailers to cut business rates as the industry faces a £6bn annual bill and a £175m inflation-linked increase in 2013.

Property and retail bosses are furious that the Coalition has scrapped a planned revaluation of business rates next year because it means that they have to pay rates based on property rents in 2008 – close to the peak of the market – until 2017.

However, despite the Chancellor looking for ways to stimulate the economy in his Autumn Statement this week, the Government will stand by the postponement and inflation increase this week.

It is understood that one of the reasons for the Coalition's stance is that the revaluation would lead to a sharp fall in taxes for banks. According to estimates by the Valuation Office Agency (VOA), office buildings in London would see a 14pc drop in business rates following the revaluation – the biggest decline in the country. This is because rents in the City – the home of the financial services industry – have slumped since the financial crisis. In contrast, pubs, theatres, and hotels would see a sharp rise in business rates, while the retail sector would see a 1pc increase.

These sectors would see a rise in rates because the multiplier used to calculate how much of the rental value will be paid in tax would have to increase sharply to cover the shortfall in rates from London offices.

Business rates – one of the Government's biggest sources of income – are calculated on the rental value of a property and the annual rate of inflation. The revaluation is designed to redistribute how the tax is paid but does not change the total paid to the Treasury. The Government is also thought to have concerns about the cost of the revaluation – estimated to be £43m – and the backlog of 200,000 rates appeals facing the VOA.